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Technical charts are used every day by proprietary trading floors, the Street's biggest financial firms and individual investors to get an edge on the market. And according to some sources, skilled technical traders can bank gains as much as 90% of the time.
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So with uncertainty bearing down on Main Street investors right now, prescient investors are turning to those technical indicators to catch a glimpse of how difficult elements of market mechanics -- such as investor sentiment and supply and demand -- are taking shape on Wall Street right now. One of the best ways to do that is by taking a look at some of the biggest-name stocks -- the ones that are seeing the highest trading volumes this week.
Every week, we take an in-depth look at three large-cap stocks that are telling important technical stories right now.
While Citigroup (C) is traditionally one of the most active stocks on the NYSE, it’s been getting special attention lately. That’s thanks to the brief flirtation with new 52-week highs that shares of Citi made at the beginning of the new year. Now, with shares decisively lower following a fourth-quarter earnings miss more than a month ago, Citi shareholders need to be playing defense.
Following Citi’s earnings miss in late January, shares gapped down to the sub-$5 range, consolidating for just over a month as market participants determined the direction for this stock. At the end of February, shares cracked below support and have since been consolidating at the stock’s next lower level.
Right now, trader bias toward Citi is on the short side. Following two lower bouts of consolidation, this banking giant has two overhead resistance levels to surmount before it can make another attempt at those previous highs. Meanwhile, with support at $4.50 and little else below it, a fall below that support level could send shares to the 200-day moving average. Caveat emptor.
British American Tobacco
The last year was a strong one for shares of British American Tobacco (BTI). This international tobacco stock has seen its value climb more than 13% in the trailing 12 months, in addition to the hefty 4.6% dividend yield being enjoyed by shareholders. But for traders hoping to catch a ride on BTI’s momentum, I’d suggest hanging on.
That’s because BTI is right on the verge of being overextended right now. Shares broke above resistance last month, signaling a buy signal to traders, but since then, the stock hasn’t had a chance to cool off and absorb that overbought momentum. If you’re interested in becoming a buyer of BTI, wait for a retest of some form of support first.
A return to $77 -- followed by a bounce higher -- would be a good buying opportunity for long-side investors. Barring that, wait for a bit of sideways consolidation before adding on shares. BTI needs to form a base right now.
Even though Wal-Mart’s (WMT) price action has been somewhat less impressive this year (the retail behemoth is trailing the S&P 500 by around 7% in 2011), the technicals point to a potentially good buying opportunity in shares. That’s thanks to the base the stock built at its previous pivot level of $51. Now, with shares bouncing out of their consolidation channel, Wal-Mart is giving short-term traders reason to buy.
That’s because with resistance at the 200-day moving average out of the way, this stock has little in the way of upside resistance until the 50-day moving average, currently at $54 and change. Yesterday’s white bar was the initial bullish move -- wait for a second consecutive open above the 200-day before becoming a buyer. If you decide to go long Wal-Mart, consider a protective stop just below the lower blue support line at $51.
To see this week’s trades in action, check out the High Volume Technicals portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.RELATED LINKS:
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.